LUNC stands for Terra Luna Classic. Luna Classic (LUNC) is the original Terra blockchain's native coin left behind LUNA after Terra rebranded to Terra 2.0 and the collapse of UST/LUNA. Terra is a decentralized blockchain based on Cosmos founded by Do Kwon in 2018, hosting stablecoins on its network.
Its role was to serve as a twin token to absorb any price deviation of the blockchain’s algorithmic stablecoin, terraUSD (UST). UST was supposed to keep its price pegged to the U.S. dollar by creating (minting) and (destroying) burning UST tokens to balance the stablecoin’s supply and demand at a $1 price peg.
Actually, LUNC had four different roles specifically in the original Terra network:
- A method to pay for transaction fees in the Terra network.
- A mechanism for maintaining Terra’s stablecoin peg.
- Staking in Terra’s delegated proof of stake (DPoS) to validate network transactions.
- Participation in the platform’s governance by adding to and voting on proposals when it comes to changes in the Terra network.
The original Terra is a decentralized and open-source public blockchain protocol for algorithmic stablecoins. Using a combination of open market arbitrage incentives and decentralized Oracle voting, the Terra protocol creates stablecoins that track the price of fiat currency.
Users can spend, save, trade, or exchange Terra stablecoins instantly on the Terra blockchain. $LUNC provides its holders with staking rewards and governance power.
Terraform Labs created the UST coin to be an algorithmic stablecoin on the Terra network. While other stablecoins (USDC or Tether) are fiat-backed, the UST would not be backed by real assets. Instead, the value of UST would be backed by its sister token, Luna.
How much is LUNC's price?
An original Luna coin (LUNC) was going for around $116 in April 2022 and ended up dropping to a fraction of a penny before being delisted. Before that, the coin went from being worth less than $1 in early 2021 to creating many crypto millionaires within a year.
The origianal Luna token (LUNC) skyrocketed about 135% in less than two months until its peak in April 2022. The largest incentive was that you could stake your UST holdings on the Anchor lending platform for a 20% annual yield. (The Anchor Protocol was a decentralized money market built on the Terra blockchain. For more detailed information about the mechanism of LUNA & Anchor you can read Terra & Anchor - Solid Ponzi by 0xAidan ) This platform became popular for its aforementioned 20% yield for UST holders who deposited their tokens on the platform. Then Anchor would turn around and loan the deposit to another investor.
What is the relationship between TerraUSD (UST) and LUNA?
Fiat-backed stablecoins such as Tether USDT and USDC are backed by fiat currencies like US dollars. While the UST coin was not backed by an actual US Dollar but rather an algorithmic stablecoin.
To create UST you have to burn original Luna. So, for example, when original Luna's price was $85, you could trade one token for 85 UST.
For UST to retain its peg, one UST could be changed for $1 worth of original Luna at any time. If UST slipped, arbitrageurs could make money from buying UST and then exchanging it for Luna.
LUNA crash & UST off-pegged
The Luna crypto crash was caused by its connection to TerraUSD (UST). On May 7, over $2 billion worth of UST was unstaked (taken off the Anchor Protocol), and hundreds of millions of it were quickly liquidated. The huge sell-offs brought down the price of UST to $0.91, from $1. As a result, traders started to change 90 cents worth of UST for $1 of Luna.
Once a large amount of UST had been offloaded, the stablecoin started to depeg. In a panic, more people sold off UST, which led to the minting of more Luna and an increase in the circulating supply of Luna. Following this crash, crypto exchanges started to delist Luna and UST pairings. Long story short, Luna was abandoned as it became worthless.
What happened after the Luna crash?
The Luna meltdown impacted the entire cryptocurrency market, which was already highly volatile and experiencing difficulty at the time.
- Further, UST's price dropped 36% (<$0.64).
- Binance suspended withdraws for LUNA and UST.
- Crypto leaders Voyager and Celsius filed for bankruptcy.
- Three Arrows Capital (3AC) was forced into liquidation, and filed for bankruptcy.
Many people suffered from this crash, the only winners were those who exited their positions before the crash. One winner that we have to highlight is the hedge fund Pantera Capital. They saw a 100x return on an initial investment of $1.7 million. The company liquidated its Luna position prior to the collapse for a return of $171 million.
What happened to Do Kwon?
Do Kwon shared a recovery plan for Luna, and things looked promising for a brief period of time in May after the original crash.
But the coin ultimately plummeted. Luna Foundation Guard needed more than $1 billion to shore up the $UST stablecoin. It was promptly abandoned. LFG's $1 billion plan has failed.
Terra ended up launching a new coin, Luna 2.0.
On September 15, it was announced that a court in South Korea had issued an arrest warrant for Do Kwon. (Do Kwon and five other people are currently accused of violating local market laws.)
Terra was founded in January 2018 by Daniel Shin and Do Kwon. The two conceived of the project as a way to drive the rapid adoption of blockchain technology and cryptocurrency through a focus on price stability and usability.
- Prior to developing Terra, Shin co-founded and headed Ticket Monster, otherwise known as TMON. He later co-founded Fast Track Asia, a startup incubator working with entrepreneurs to build fully functional companies.
- Kwon previously founded and served as CEO of Anyfi. He has also worked as a software engineer for Microsoft and Apple.
*The following is cited from an interview with Do Kwon and Daniel Shin
Terra was created in January 2018 with the singular vision of facilitating the mass adoption of cryptocurrencies by creating digitally native assets that are price-stable against the world's major fiat currencies. Keeping in mind that previous innovations in the technology of money was bootstrapped by large payment networks (Alipay with Taobao, Paypal with eBay, Visa with banks), Terra was born with the support of the Terra Alliance, 15 large e-commerce companies in Asia that collectively process 25 billion USD in annualized transaction volume and 45 million users. The vision of the project is that with the adoption and user engagement of a massive payment network, it will be able to, for the first time, bootstrap a blockchain payment network to the scale it deserves and facilitate far more powerful products and use cases through its infrastructure.
During conversations between co-founders, Daniel Shin and Do Kwon, the concept of Terra began as a solution towards immediate and massive usage of the cryptocurrency and blockchain infrastructure being built around them. To them, price stability and adoption were important in preparing the first steps towards massive adoption of cryptocurrency and blockchain infrastructure. Daniel Shin, with his extensive experience in building one of the biggest e-commerce platforms in Asia, laid out the existing problems we face in payment networks that cannot be solved through just incremental improvements. Do Kwon, previously a founder of a wireless mesh network startup building decentralized application, explained how Terra can turn those problems into an opportunity to build money from the ground up.
One part of Terra's value contributions, payments, in essence replaces the complicated payments value chain, including credit card networks, banks, and payment gateways with a single blockchain layer. Through this, it can offer merchants a significantly cheaper transaction fee, saving them money that can be reinvested in something else. Further, in concert with the efficiencies that Terra has provided payment channels for both merchants and consumers, it continues to steadily provide infrastructural improvements and tools for the foundations of laying down a credibly neutral, distributed, and radically transparent ecosystem. Bolstered through the initial mass adoption of Terra's blockchain infrastructure powering its partner, CHAI, which has amassed over 1.3 million users to date, Terra moves naturally towards ecosystem building that offers competitive programmable payments, logistics, and infrastructure to power the plethora of industry that will be built on efficiency and scale.
